Starting a new business is an exciting adventure. But to ensure success, you must pay attention to every detail, and that includes choosing the right structure for your business.
This decision determines many important factors, such as how much to pay in taxes, and the paperwork you are required to complete.
If you don’t have a clear idea of what your choices are when it comes to the structure for a new business, don’t worry. Below you will find everything you need to know.
Sole Proprietorship
This is an unincorporated business owned by an individual. In this case, there is no distinction between the taxpayer and their business. This is a good option for low-risk businesses or if you want to try a business idea before giving it a more formal structure.
Partnership
An unincorporated business where ownership is shared between two or more people. Each person contributes their capital, skill, or labor, and everyone shares in the profits and losses. This can be a good fit for businesses with many owners (such as a group of lawyers, for example) or, as with sole proprietorship, for people who want to try a business idea before giving it a more complex structure.
Corporation
This structure is also known as C corporation and is a separate entity owned by shareholders. This type of business structure offers greater protection to owners against personal liability but the cost of forming it is usually higher compared to other options. Unlike other types of businesses, corporations pay taxes on their profits essentially two times: first, when they earn the profits, and then when the profits are distributed among the shareholders.
This is usually a good option for medium to high-risk businesses that need to raise capital by selling actions and get listed on the stock exchange.
S Corporation
This is a corporation that chooses to transfer profits, losses, deductions, and cooperative credits to shareholders. This business structure is designed to avoid being technically taxed twice, as is the case with corporations. Not all states recognize S corporations. Besides, this type of company is subject to stringent operative processes that limit them in very specific ways.
Limited Liability Company (LLC)
This is a business structure allowed by law statutes. Each state applies different regulations, so it’s important to check the specific regulations in your state if you are interested in choosing this type of structure. Owners of LLCs are called members. Most states do not restrict ownership, so there’s no maximum number of members, and most states allow single-member LLCs.
It’s important to note that some companies, like banks, cannot be an LLC. Check with your state tax agency or with a trusted tax professional to get specific information about the rules that apply in your state.
Contact the Experts at Meadville Tax Service
Set your business up for success by seeking assistance from the experts at Meadville Tax Service. We have made it our mission to assist you so you can file your taxes efficiently, limiting your tax liability while staying compliant with federal tax regulations.
Contact us today by email, telephone (814-333-2488), or through our social media accounts on Facebook, Twitter, and LinkedIn to learn more about our services.
